Early this week, Bank of America/Merrill Lynch published an analyst report on Modified Risk Tobacco Products (MRTPs) detailing the significant impact that MRTPs will have on the $748 billion annual worldwide tobacco industry. “We are on the eve of what we all believe could be a paradigm shift for our industry,” Philip Morris International (NYSE: PM) CEO, Louis Camilleri was quoted. The new products have “the very real potential to not only be a game-changer, but also be the key to unlock several hitherto virgin territories, most notably the huge Chinese market.”

Indeed MRTPs could revolutionize the tobacco industry and generate untold profits for the most innovative, consumer-acceptable products. BOA goes into great detail describing “Modified Smoking” products which mimic smoking such as e-cigarettes and heat, not burn, products, and “Alternatives to Smoking” such as snus, dissolvables and nicotine replacement products. Examples are these products are marketed at Lorillard Inc. (NYSE: LO) and Reynolds American Inc. (NYSE: RAI).

Yet history has shown that the world’s one billion smokers are not attracted to the exotic MRTPs catalogued in the BOA report. According to the report, traditional combustible cigarettes account for 92% of the value of all tobacco products sold worldwide. Simply stated: smokers prefer combustible cigarettes and are highly attracted to cigarettes that are potentially less harmful. Yet remarkably, the BOA analyst report does not comment on technology that addresses the 6 trillion cigarettes smoked every year.

As with many analyst reports covering blue chip companies, Bank of America seems to have overlooked one of the most compelling companies in the space that has headroom for tremendous growth that may be unprecedented compared to goliaths in the tobacco industry. The tiny microcap? A biotechnology-tobacco hybrid, 22nd Century Group, Inc. (OTCBB: XXII). What gives under-the-radar 22nd Century Group credibility? Well, with over 100 patents, mainly on the genes in the tobacco plant that regulate nicotine production, 22nd Century is the only company in the world with the technology to provide the U.S. National Institutes of Health research cigarettes containing an entire spectrum of nicotine content: from very low to high.

A peer-reviewed research paper just published this week by lead-author Dr. Dorothy K. Hatsukami, a member of the FDA’s Tobacco Product Scientific Advisory Committee, (TPSAC), Dose-Response Effects of Spectrum Research Cigarettes (www.ncbi.nlm.nih.gov/pubmed/23178320), summarizes that 22nd Century Group’s Spectrum cigarettes “that vary in nicotine content produce an expected dose-response effect.” Further, Spectrum cigarettes may represent an opportunity to “scientifically determine if reducing (or increasing) nicotine content in cigarettes may be a viable national policy strategy.”

Indeed, if health awareness and an ever-increasing stranglehold on the number of public places where smoking is permitted aren’t enough to lower consumer demand and bolster use of MRTPs, the government is setting initiatives in place through the Tobacco Control Act that could mandate lower levels of nicotine in cigarettes or other related compounds. Regulations of this nature will leave manufacturers reeling to meet compliance requirements and will result in increased pressure by consumers for alternatives to today’s conventional cigarettes. In this environment, the holy grail for the industry is modified risk combustible cigarettes.

The New York-based 22nd Century Group has introduced its own products in the U.S. market, including its RED SUN brand that has relatively high levels of nicotine — slated for national distribution in 2013 as a super-premium cigarette. The company is also developing consumer-acceptable reduced risk tobacco products and is in late-stage clinical trials with very low nicotine (VLN) cigarettes as a smoking cessation product. What these developments provide for are exponential growth prospects for 22nd Century on both horizontal and vertical planes. While big tobacco seems somewhat paralyzed in trying to make decisions about what direction to move for traditional cigarettes, 22nd Century has held a firm course and developed the technology to modify nicotine levels in tobacco from very low to high. In that respect, the company has no peers as no other company has been able to achieve what they have with either raising or lowering the nicotine levels. This could prove to be invaluable to the industry and smokers - and to shareholders of XXII.

Further, 22nd Century has supplied its very low nicotine (VLN) cigarettes for a 200-patient clinical trial in London where researchers, in collaboration with Pfizer Inc. (NYSE: PFE), are evaluating Pfizer’s Chantix in combination with 22nd Century’s VLN cigarettes as an improved smoking cessation therapy. Additional independent Phase II studies are ongoing at the University of Minnesota examining the remarkable benefits of the company’s VLN cigarettes.

22nd Century’s technology not only works to reduce nicotine levels in the tobacco plant, but it is also efficient in raising nicotine levels to extremely high levels, a methodology that some experts believe reduces exposure to smoke and tar (the bad stuff) by more efficiently giving the smoker the desired dose of nicotine. Similar to coffee served at Starbucks compared to that of the local diner. Less is required.

Notwithstanding Bank of America’s unintentional snub, 22nd Century Group’s unique position in the industry is clear. 22nd Century has ties with the U.S. government that distinguish the company from all others in the tobacco industry. 22nd Century’s products are sought after by independent clinical researchers worldwide. According to company news releases, this year 22nd Century began actively pursuing licensing agreements with major pharmaceutical tobacco companies. What’s more the company recently announced its intention to file a modified risk tobacco product application with the FDA for two of its products. Given these facts, this under-the-radar company appears ready to shine. A licensing agreement of some nature - either in the biotechnology or tobacco arenas would seem on the horizon and would obviously ignite the stock.

Apropos, with all of the information on the tobacco industry that is hitting the wires this week, it does not appear that XXII is slipping past the eyes of the investment community. Shares are already commanding a 75 percent premium to the previous Friday’s closing price as volume has skyrocketed to record highs. Even with the deserved attention, shares still have plenty of upside potential as they sit a dollar below all-time highs.

Insiders apparently are seeing the opportunity. Chief Executive Officer, Joseph Pandolfino, and President, Henry Sicignano, have invested more than $300,000 this month purchasing more than one million shares according to company’s filings with the Securities and Exchange Commission (secfilings.com/SearchResults.aspx?ticker=XXII). Insiders buying could be equated to “where there’s smoke, there’s fire” and this company may be ready to (no pun intended), light it up.

22nd Century Group (XXII) Stock Quote and News:

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